MUFG Americas Holdings Corp - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 24, 2013

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8-K - UNIONBANCAL CORPORATION 8-K - MUFG Americas Holdings Corpa50616866.htm

Exhibit 99.1

UnionBanCal Corporation Reports First Quarter Net Income of $147 Million

First Quarter Highlights:

  • Net income was $147 million, up from $123 million for the prior quarter, but down from $195 million for the year-ago quarter.
  • Total loans held for investment, excluding purchased credit-impaired (PCI) loans, at March 31, 2013, were $59.8 billion, up from $58.8 billion at December 31, 2012, and up from $53.5 billion at March 31, 2012.
  • Core deposits at March 31, 2013, were $63.6 billion, down from $63.8 billion at December 31, 2012, and up from $53.1 billion at March 31, 2012.
  • Total provision for credit losses was $12 million, compared with a benefit of $15 million for the prior quarter, and a benefit of $3 million for the year-ago quarter.
  • Key asset quality metrics continue to be strong. Excluding PCI loans and FDIC covered other real estate owned (OREO):
    • Nonperforming assets at quarter-end were $520 million, or 0.54 percent of total assets, unchanged from the previous quarter.
    • Net charge-offs were low at $12 million for the quarter, or an annualized 0.08 percent of average total loans held for investment, compared with less than $1 million for the prior quarter and $54 million a year ago.
  • Net interest margin was 3.01 percent, down from 3.17 percent for the prior quarter, and down from 3.20 percent for the year-ago quarter.
  • Capital ratios remained strong during the quarter:
    • Tier 1 common capital ratio, measured using Basel I risk-weighted assets, was 12.48 percent at March 31, 2013, up 13 basis points from 12.35 percent at December 31, 2012.
    • Tangible common equity ratio was 10.05 percent at March 31, 2013, up 13 basis points from 9.92 percent at December 31, 2012.
  • On April 7, 2013, Union Bank announced that it reached an agreement to acquire PB Capital Corporation's institutional commercial real estate (CRE) lending portfolio.

SAN FRANCISCO--(BUSINESS WIRE)--April 24, 2013--UnionBanCal Corporation (the Company), parent company of San Francisco-based Union Bank, N.A., today reported first quarter 2013 results. Net income for the quarter was $147 million, up from $123 million for the prior quarter, and down from $195 million for the year-ago quarter. Net income was higher compared to the prior quarter primarily due to higher noninterest income and lower income tax expense, partially offset by lower net interest income.

On April 7, 2013, Union Bank announced that it reached an agreement to acquire PB Capital Corporation's (PB Capital) institutional CRE lending portfolio. The acquisition will expand Union Bank's CRE presence in the U.S. and enhance its geographic and asset class diversification. It will also add a desirable real estate customer base and a seasoned management team. Headquartered in New York, the CRE lending division of PB Capital has approximately $3.7 billion in loans outstanding on properties in major metropolitan areas across the U.S. The acquisition is subject to customary closing conditions, and is expected to be completed in the second quarter of 2013.

Summary of First Quarter Results

First Quarter Total Revenue

For first quarter 2013, total revenue (net interest income plus noninterest income) was $903 million, up $14 million compared with fourth quarter 2012. Net interest income decreased 1 percent, and noninterest income increased 9 percent. The net interest margin was 3.01 percent, down 16 basis points from 3.17 percent for the prior quarter.

Net interest income for first quarter 2013 was $648 million, down $7 million, or 1 percent, compared with fourth quarter 2012. The decrease in net interest income was primarily due to a decline in the net interest margin, which reflected the repricing of loans, primarily commercial and industrial loans and residential mortgage loans, and securities in the current low interest rate environment. The decline in the net interest margin was partially offset by an increase in average earning assets, reflecting organic growth and the full-quarter effect of the acquisition of Pacific Capital Bancorp (PCBC) that was completed December 1, 2012.

Average total loans held for investment, excluding PCI loans, increased $2.9 billion, or 5 percent, compared with fourth quarter 2012, primarily due to a full-quarter’s inclusion of the PCBC acquisition. Deposit balances grew significantly during the quarter, primarily due to organic deposit growth and the PCBC acquisition. Average interest bearing deposits increased $3.9 billion, or 8 percent, and average noninterest bearing deposits increased $0.8 billion, or 3 percent.

For first quarter 2013, noninterest income was $255 million, up $21 million, or 9 percent, compared with fourth quarter 2012, primarily due to higher net gains on the sale of securities resulting from portfolio rebalancing activities.

Compared to first quarter 2012, total revenue grew $48 million, with net interest income up 1 percent and noninterest income up 19 percent. Net interest income increased $7 million compared with the year-ago quarter, primarily due to loan growth. Net interest margin declined 19 basis points, primarily due to lower yields on loans and securities and a higher level of interest bearing deposits in banks.

Average total loans held for investment, excluding PCI loans, increased $6.2 billion, or 12 percent, compared with first quarter 2012, primarily due to organic loan growth, as well as the PCBC acquisition. Average interest bearing deposits increased $5.5 billion, or 13 percent, and average noninterest bearing deposits increased $4.3 billion, or 21 percent.

Noninterest income increased $41 million, or 19 percent, compared with first quarter 2012, primarily due to higher net gains on the sale of securities. Fees from trading account activities decreased primarily due to lower customer derivative trading activity.

First Quarter Noninterest Expense

Noninterest expense for first quarter 2013 was $713 million, flat compared with fourth quarter 2012. Staff expenses increased $13 million, reflecting the impact of a full quarter of PCBC staffing costs, as well as annual seasonal factors. Non-staff expenses decreased $15 million, primarily due to lower professional and outside services expense and lower merger costs related to acquisitions. First quarter 2013 non-staff expenses included a $15 million provision for losses on off-balance sheet commitments, compared with a $10 million reversal of provision for losses on off-balance sheet commitments in fourth quarter 2012.

Noninterest expense for first quarter 2013 was up $99 million, or 16 percent, compared with first quarter 2012. Staff expense increased $57 million, primarily due to the PCBC acquisition and higher pension and health benefits expense. Non-staff expense increased primarily due to the PCBC acquisition and various regulatory and compliance costs. The provision for losses on off-balance sheet commitments was $15 million for first quarter 2013, compared with a benefit of $2 million for first quarter 2012.

Taxes

The effective tax rate for first quarter 2013 was 26 percent, compared with an effective tax rate of 34 percent for fourth quarter 2012. The decrease in the effective tax rate was primarily due to fourth quarter adjustments to 2012 tax expense for higher than previously-expected earnings.

Balance Sheet

At March 31, 2013, the Company had total assets of $97.0 billion, flat compared with December 31, 2012. At March 31, 2013, total deposits were $74.0 billion, down slightly compared with December 31, 2012. Core deposits at March 31, 2013, were $63.6 billion, down less than $0.2 billion, or less than 1 percent, compared with December 31, 2012.

Credit Quality

Excluding PCI loans and FDIC covered OREO, nonperforming assets ended the quarter at $520 million, or 0.54 percent of total assets; unchanged from December 31, 2012; and down from $558 million, or 0.61 percent of total assets, at March 31, 2012.

Excluding PCI loans, net charge-offs were low at $12 million for first quarter 2013, or an annualized 0.08 percent of average total loans. This was up from net charge-offs of less than $1 million in fourth quarter 2012, and down from net charge-offs of $54 million, or an annualized 0.41 percent of average total loans, for first quarter 2012.

The total provision for credit losses is comprised of the provision for loan losses and the provision for losses on off-balance sheet commitments, which is classified in noninterest expense. In first quarter 2013, the provision for loan losses was a benefit of $3 million and the provision for losses on off-balance sheet commitments was $15 million, for a total provision for credit losses of $12 million for first quarter 2013. This compares with a benefit of $15 million for fourth quarter 2012. The primary drivers of the higher total provision were updates to the attributions for certain sectors within the commercial portfolio segment and higher criticized loan levels.

The allowance for credit losses as a percent of total loans, excluding PCI loans, was 1.30 percent at March 31, 2013, compared with 1.31 percent at December 31, 2012, and 1.54 percent at March 31, 2012. The allowance for credit losses as a percent of nonaccrual loans, excluding PCI loans, was 158 percent at March 31, 2013, compared with 162 percent at December 31, 2012, and 155 percent at March 31, 2012.

Capital

At March 31, 2013, the Company’s stockholder’s equity was $12.6 billion, up $103 million, or 1 percent, from December 31, 2012, and tangible common equity was $9.4 billion, up $122 million, or 1 percent, from December 31, 2012. The Company’s tangible common equity ratio was 10.05 percent at March 31, 2013, up 13 basis points from 9.92 percent at December 31, 2012. The Basel I Tier 1 common and Tier 1 risk-based capital ratios were 12.48 percent and 12.56 percent, respectively, at March 31, 2013. Additionally, the Basel I Total risk-based capital ratio was 14.05 percent at March 31, 2013. In March 2013, the Company received notification that the Federal Reserve did not object to the Company’s planned capital actions.

Non-GAAP Financial Measures

This press release contains certain references to financial measures identified as excluding privatization transaction impact, foreclosed asset expense and other credit costs, (reversal of) provision for losses on off-balance sheet commitments, productivity initiative costs, low income housing credit (LIHC) investment amortization expense, expenses of the LIHC consolidated variable interest entities, merger costs related to acquisitions, debt termination fees from balance sheet repositioning, gains from certain securities associated with balance sheet repositioning, or intangible asset amortization, which are adjustments from comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (GAAP). These financial measures, as used herein, differ from financial measures reported under GAAP in that they exclude unusual or non-recurring charges, losses or credits. This press release identifies the specific items excluded from the comparable GAAP financial measure in the calculation of each non-GAAP financial measure. Management believes that financial presentations excluding the impact of these items provide useful supplemental information which is important to a proper understanding of the Company’s business results. This press release also includes additional capital ratios (the tangible common equity and Basel I Tier 1 common capital ratios) to facilitate the understanding of the Company’s capital structure and for use in assessing and comparing the quality and composition of UnionBanCal’s capital structure to other financial institutions. These presentations should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures presented by other companies.

Forward-Looking Statements

The following appears in accordance with the Private Securities Litigation Reform Act. This press release includes forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words “believe,” “continue,” “expect,” “target,” “anticipate,” “intend,” “plan,” “estimate,” “potential,” “project,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” They may also consist of annualized amounts based on historical interim period results. Forward-looking statements in this press release include those related to the Company’s announced acquisition of PB Capital Corporation’s Institutional CRE lending portfolio. There are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in the Company’s forward-looking statements. Many of these factors are beyond the Company’s ability to control or predict and could have a material adverse effect on the Company’s financial condition, and results of operations or prospects. For more information about factors that could cause actual results to differ materially from our expectations, refer to our reports filed with the Securities and Exchange Commission (SEC), including the discussions under “Management’s Discussion & Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC and available on the SEC’s website at www.sec.gov. Any factor described above or in our SEC reports could, by itself or together with one or more other factors, adversely affect our financial results and condition. All forward-looking statements included in this press release are based on information available at the time of the release, and the Company assumes no obligation to update any forward-looking statement.

Headquartered in San Francisco, UnionBanCal Corporation is a financial holding company with assets of $97 billion at March 31, 2013. Its primary subsidiary, Union Bank, N.A., is a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations. The bank operated 443 branches in California, Washington, Oregon, Texas, Illinois, and New York as well as two international offices, on March 31, 2013. UnionBanCal Corporation is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a subsidiary of Mitsubishi UFJ Financial Group, Inc. Union Bank is a proud member of the Mitsubishi UFJ Financial Group (MUFG, NYSE:MTU), one of the world’s largest financial organizations. Visit www.unionbank.com for more information.

UnionBanCal Corporation and Subsidiaries
Financial Highlights (Unaudited)

Exhibit 1

 
            Percent Change to
As of and for the Three Months Ended March 31, 2013 from
March 31, December 31, September 30, June 30, March 31, December 31,   March 31,
(Dollars in millions) 2013 2012 2012 2012 2012 2012 2012
Results of operations:
Net interest income $ 648 $ 655 $ 641 $ 646 $ 641 (1 ) % 1 %
Noninterest income   255     234     202   188     214   9 19
Total revenue 903 889 843 834 855 2 6
Noninterest expense   713     715     638   599     614   - 16
Pre-tax, pre-provision income (1) 190 174 205 235 241 9 (21 )
(Reversal of) provision for loan losses   (3 )   (5 )   45   (14 )   (1 ) (40 ) (200 )

Income before income taxes and including noncontrolling interests

193 179 160 249 242 8 (20 )
Income tax expense   50     60     42   67     51   (17 ) (2 )
Net income including noncontrolling interests 143 119 118 182 191 20 (25 )
Deduct: Net loss from noncontrolling interests   4     4     6   5     4   - -

Net income attributable to UnionBanCal Corporation (UNBC)

$ 147   $ 123   $ 124 $ 187   $ 195   20 (25 )
 
Balance sheet (end of period):
Total assets $ 96,959 $ 96,992 $ 88,185 $ 87,939 $ 92,323 - 5
Total securities 22,816 22,455 22,089 22,890 25,432 2 (10 )
Total loans held for investment 60,882 60,034 55,410 54,291 54,322 1 12
Core deposits (2) 63,585 63,769 55,141 53,378 53,125 - 20
Total deposits 73,990 74,255 65,143 63,443 65,089 - 14
Long-term debt 5,314 5,622 5,540 6,444 5,554 (5 ) (4 )
UNBC stockholder's equity 12,594 12,491 12,437 12,076 11,821 1 7
 
Balance sheet (period average):
Total assets $ 96,649 $ 92,051 $ 87,881 $ 89,479 $ 89,449 5 8
Total securities 21,824 21,903 22,496 24,223 24,265 - (10 )
Total loans held for investment 60,553 57,242 55,285 54,937 54,149 6 12
Earning assets 87,055 82,776 79,137 80,625 80,503 5 8
Total deposits 74,256 69,601 64,420 64,499 64,425 7 15
UNBC stockholder's equity 12,584 12,559 12,209 11,905 11,621 - 8
 
Performance ratios:
Return on average assets (3) 0.61 % 0.54 % 0.56 % 0.84 % 0.88 %
Return on average UNBC stockholder's equity (3) 4.67 3.93 4.03 6.32 6.75

Return on average assets excluding the impact of privatization transaction and merger costs related to acquisitions (3) (4)

0.72 0.68 0.62 0.90 0.93

Return on average stockholder's equity excluding the impact of privatization transaction and merger costs related to acquisitions (3) (4)

6.62 5.93 5.38 8.22 8.73

Efficiency ratio (5)

78.89 80.45 75.61 71.83 71.86
Adjusted efficiency ratio (6) 67.76 70.29 68.37 66.18 68.76
Net interest margin (3) (7) 3.01 3.17 3.25 3.23 3.20
 
Capital ratios:
Tier 1 risk-based capital ratio (8) 12.56 % 12.44 % 13.77 % 13.78 % 13.73 %
Total risk-based capital ratio (8) 14.05 13.93 15.51 15.54 15.77
Leverage ratio (8) 10.70 11.18 12.03 11.58 11.35
Tier 1 common capital ratio (8) (9) 12.48 12.35 13.77 13.78 13.73
Tangible common equity ratio (10) 10.05 9.92 11.46 11.04 10.20
 
Refer to Exhibit 11 for footnote explanations.
 
UnionBanCal Corporation and Subsidiaries
Credit Quality (Unaudited)

Exhibit 2

 
            Percent Change to
As of and for the Three Months Ended March 31, 2013 from
March 31, December 31, September 30, June 30, March 31, December 31,   March 31,
(Dollars in millions) 2013 2012 2012 2012 2012 2012 2012
 
Credit Data:
(Reversal of) provision for loan losses, excluding FDIC covered loans $ (3 ) $ (3 ) $ 43 $ (13 ) $ 1 - % (400 ) %

(Reversal of) provision for FDIC covered loan losses not subject to FDIC indemnification

- (2 ) 2 (1 ) (2 ) 100 100
(Reversal of) provision for losses on off-balance sheet commitments   15     (10 )   (4 )   (1 )   (2 ) 250 nm
Total (reversal of) provision for credit losses $ 12   $ (15 ) $ 41   $ (15 ) $ (3 ) 180 500
Net loans charged off $ 14 $ 5 $ 42 $ 31 $ 53 180 (74 )
Nonperforming assets 607 616 637 658 706 (1 ) (14 )
Criticized loans held for investment (11) 1,545 1,277 1,520 1,443 1,620 21 (5 )
 
Credit Ratios:
Allowance for loan losses to:
Total loans held for investment 1.05 % 1.09 % 1.21 % 1.21 % 1.30 %
Nonaccrual loans 122.62 129.47 125.12 118.63 121.35

Allowance for credit losses to (12):

Total loans held for investment 1.27 1.28 1.43 1.45 1.54
Nonaccrual loans 149.24 152.67 148.80 142.20 144.01
Net loans charged off to average total loans held for investment (3) 0.10 0.03 0.30 0.22 0.40

Nonperforming assets to total loans held for investment and Other Real Estate Owned (OREO)

1.00 1.02 1.15 1.21 1.30
Nonperforming assets to total assets 0.63 0.63 0.72 0.75 0.76
Nonaccrual loans to total loans held for investment 0.85 0.84 0.96 1.02 1.07
 
Excluding purchased credit-impaired loans and FDIC covered OREO (13):
Allowance for loan losses to:
Total loans held for investment 1.06 % 1.11 % 1.20 % 1.22 % 1.30 %
Nonaccrual loans 129.56 137.40 130.29 127.22 129.95

Allowance for credit losses to (12):

Total loans held for investment 1.30 1.31 1.43 1.46 1.54
Nonaccrual loans 157.75 162.05 155.39 152.64 154.55
Net loans charged off to average total loans held for investment (3) 0.08 0.01 0.29 0.21 0.41

Nonperforming assets to total loans held for investment and OREO

0.87 0.88 0.96 1.01 1.04
Nonperforming assets to total assets 0.54 0.54 0.60 0.62 0.61
Nonaccrual loans to total loans held for investment 0.82 0.81 0.92 0.96 1.00
 
Refer to Exhibit 11 for footnote explanations.
 
UnionBanCal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)

Exhibit 3

         
For the Three Months Ended
March 31, December 31, September 30, June 30, March 31,
(Dollars in millions) 2013 2012 2012 2012 2012
Interest Income
Loans $ 629 $ 629 $ 608 $ 608 $ 594
Securities 118 122 129 134 142
Other   3     3     1     -     2  
Total interest income   750     754     738     742     738  
 
Interest Expense
Deposits 65 62 56 57 58
Commercial paper and other short-term borrowings 1 1 2 3 3
Long-term debt   36     36     39     36     36  
Total interest expense   102     99     97     96     97  
 
Net Interest Income 648 655 641 646 641
(Reversal of) provision for loan losses   (3 )   (5 )   45     (14 )   (1 )
Net interest income after (reversal of) provision for loan losses   651     660     596     660     642  
 
Noninterest Income
Service charges on deposit accounts 53 51 51 52 55
Trust and investment management fees 35 33 29 27 30
Trading account activities 8 33 26 25 31
Merchant banking fees 16 23 24 19 23
Securities gains, net 96 20 41 28 19
Brokerage commissions and fees 12 12 11 11 10
Card processing fees, net 9 8 8 8 8
Other   26     54     12     18     38  
Total noninterest income   255     234     202     188     214  
 
Noninterest Expense
Salaries and employee benefits 421 408 356 351 364
Net occupancy and equipment 75 70 65 64 68
Professional and outside services 58 81 54 47 46
Intangible asset amortization 16 19 20 21 21
Regulatory assessments 20 17 14 16 18

(Reversal of) provision for losses on off-balance sheet commitments

15 (10 ) (4 ) (1 ) (2 )
Other   108     130     133     101     99  
Total noninterest expense   713     715     638     599     614  
 

Income before income taxes and including noncontrolling interests

193 179 160 249 242
Income tax expense 50 60 42 67 51
         
Net Income including Noncontrolling Interests 143 119 118 182 191
 
Deduct: Net loss from noncontrolling interests   4     4     6     5     4  
Net Income attributable to UNBC $ 147   $ 123   $ 124   $ 187   $ 195  
 
UnionBanCal Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)

Exhibit 4

         
March 31, December 31, September 30, June 30, March 31,
(Dollars in millions except for per share amount) 2013 2012 2012 2012 2012
Assets
Cash and due from banks $ 1,265 $ 1,845 $ 1,237 $ 1,396 $ 1,371
Interest bearing deposits in banks 3,776 3,477 1,703 1,479 3,260
Federal funds sold and securities purchased under resale agreements   50     169     32     46     8  
Total cash and cash equivalents 5,091 5,491 2,972 2,921 4,639

Trading account assets (includes $40 at March 31, 2013, $1 at December 31, 2012; $3 at September 30, 2012; $34 at June 30, 2012; and $3 at March 31, 2012 of assets pledged as collateral)

1,119 1,208 1,236 1,237 1,177
Securities available for sale 21,801 21,352 20,907 20,545 23,366

Securities held to maturity (Fair value: March 31, 2013, $1,036; December 31, 2012, $1,135; September 30, 2012, $1,224; June 30, 2012, $2,536; and March 31, 2012, $2,278)

1,015 1,103 1,182 2,345 2,066
Loans held for investment 60,882 60,034 55,410 54,291 54,322
Allowance for loan losses   (638 )   (653 )   (668 )   (656 )   (704 )
Loans held for investment, net 60,244 59,381 54,742 53,635 53,618
Premises and equipment, net 707 710 637 649 663
Intangible assets, net 339 376 298 318 341
Goodwill 2,952 2,942 2,457 2,457 2,456
FDIC indemnification asset 285 338 401 449 521
Other assets   3,406     4,091     3,353     3,383     3,476  
Total assets $ 96,959   $ 96,992   $ 88,185   $ 87,939   $ 92,323  
 
Liabilities
Deposits:
Noninterest bearing $ 24,679 $ 25,478 $ 21,490 $ 20,777 $ 20,488
Interest bearing   49,311     48,777     43,653     42,666     44,601  
Total deposits 73,990 74,255 65,143 63,443 65,089
Commercial paper and other short-term borrowings 2,228 1,363 2,091 3,035 6,680
Long-term debt 5,314 5,622 5,540 6,444 5,554
Trading account liabilities 742 895 952 976 922
Other liabilities   1,821     2,102     1,763     1,712     1,996  
Total liabilities   84,095     84,237     75,489     75,610     80,241  
 
Equity
UNBC Stockholder's Equity:
Common stock, par value $1 per share:

Authorized 300,000,000 shares; 136,330,830 shares issued and outstanding as of March 31, 2013, December 31, 2012, September 30, 2012, June 30, 2012, and March 31, 2012

136 136 136 136 136
Additional paid-in capital 5,997 5,994 5,989 5,985 5,992
Retained earnings 7,022 6,875 6,752 6,628 6,441
Accumulated other comprehensive loss   (561 )   (514 )   (440 )   (673 )   (748 )
Total UNBC stockholder's equity 12,594 12,491 12,437 12,076 11,821
Noncontrolling interests   270     264     259     253     261  
Total equity   12,864     12,755     12,696     12,329     12,082  
Total liabilities and equity $ 96,959   $ 96,992   $ 88,185   $ 87,939   $ 92,323  
 
UnionBanCal Corporation and Subsidiaries
Net Interest Income (Unaudited)

Exhibit 5

           
For the Three Months Ended
March 31, 2013 December 31, 2012
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense (7) Rate (3)(7) Balance Expense (7) Rate (3)(7)
Assets
Loans held for investment: (14)
Commercial and industrial $ 21,341 $ 177 3.37 % $ 20,585 $ 182 3.53 %
Commercial mortgage 9,898 101 4.10 8,814 91 4.12
Construction 650 8 5.21 687 8 4.24
Lease financing 1,062 7 2.49 987 11 4.50
Residential mortgage 22,858 222 3.88 21,914 220 4.01
Home equity and other consumer loans   3,602     34 3.84   3,527     33 3.79
Loans, before purchased credit-impaired loans 59,411 549 3.72 56,514 545 3.85
Purchased credit-impaired loans   1,142     80 28.33   728     85 46.39
Total loans held for investment 60,553 629 4.19 57,242 630 4.39
Securities 21,824 121 2.21 21,903 125 2.28
Interest bearing deposits in banks 4,223 3 0.25 3,250 2 0.26

Federal funds sold and securities purchased under resale agreements

171 - 0.19 79 - 0.20
Trading account assets 151 - 0.29 140 - 0.35
Other earning assets   133     - 0.64   162     - 0.49
Total earning assets 87,055   753 3.48 82,776   757 3.65
Allowance for loan losses (653 ) (673 )
Cash and due from banks 1,399 1,375
Premises and equipment, net 705 663
Other assets   8,143     7,910  
Total assets $ 96,649   $ 92,051  
 
Liabilities
Interest bearing deposits:
Transaction and money market accounts $ 31,705 22 0.28 $ 28,988 18 0.25
Savings 5,855 2 0.14 5,436 2 0.14
Time   12,314     41 1.34   11,571     42 1.42
Total interest bearing deposits   49,874     65 0.53   45,995     62 0.53
Commercial paper and other short-term borrowings (15) 1,837 1 0.21 1,482 1 0.28
Long-term debt   5,406     36 2.68   5,562     36 2.61
Total borrowed funds   7,243     37 2.05   7,044     37 2.12
Total interest bearing liabilities 57,117   102 0.72 53,039   99 0.74
Noninterest bearing deposits 24,382 23,606
Other liabilities   2,302     2,588  
Total liabilities 83,801 79,233
 
Equity
UNBC Stockholder's equity 12,584 12,559
Noncontrolling interests   264     259  
Total equity   12,848     12,818  
Total liabilities and equity $ 96,649   $ 92,051  
 

Net interest income/spread (taxable-equivalent basis)

651 2.76 % 658 2.91 %
Impact of noninterest bearing deposits 0.21 0.23
Impact of other noninterest bearing sources 0.04 0.03
Net interest margin 3.01 3.17
Less: taxable-equivalent adjustment   3   3
Net interest income $ 648 $ 655
     
Refer to Exhibit 11 for footnote explanations.
 
UnionBanCal Corporation and Subsidiaries
Net Interest Income (Unaudited)

Exhibit 6

           
For the Three Months Ended
March 31, 2013 March 31, 2012
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense (7) Rate (3)(7) Balance Expense (7) Rate (3)(7)
Assets
Loans held for investment: (14)
Commercial and industrial $ 21,341 $ 177 3.37 % $ 19,650 $ 175 3.59 %
Commercial mortgage 9,898 101 4.10 8,274 85 4.11
Construction 650 8 5.21 803 8 3.94
Lease financing 1,062 7 2.49 1,021 11 4.25
Residential mortgage 22,858 222 3.88 19,802 216 4.36
Home equity and other consumer loans   3,602     34 3.84   3,692     36 3.94
Loans, before purchased credit-impaired loans 59,411 549 3.72 53,242 531 4.00
Purchased credit-impaired loans   1,142     80 28.33   907     66 29.04
Total loans held for investment 60,553 629 4.19 54,149 597 4.42
Securities 21,824 121 2.21 24,265 142 2.35
 
Interest bearing deposits in banks 4,223 3 0.25 1,731 2 0.25

Federal funds sold and securities purchased under resale agreements

171 - 0.19 61 - 0.21
Trading account assets 151 - 0.29 151 - 0.62
Other earning assets   133     - 0.64   146     - 0.10
Total earning assets 87,055   753 3.48 80,503   741 3.68
Allowance for loan losses (653 ) (765 )
Cash and due from banks 1,399 1,326
Premises and equipment, net 705 673
Other assets   8,143     7,712  
Total assets $ 96,649   $ 89,449  
 
Liabilities
Interest bearing deposits:
Transaction and money market accounts $ 31,705 22 0.28 $ 25,609 14 0.22
Savings 5,855 2 0.14 5,278 2 0.16
Time   12,314     41 1.34   13,443     42 1.24
Total interest bearing deposits   49,874     65 0.53   44,330     58 0.52
Commercial paper and other short-term borrowings (15) 1,837 1 0.21 4,335 3 0.29
Long-term debt   5,406     36 2.68   6,079     36 2.41
Total borrowed funds   7,243     37 2.05   10,414     39 1.53
Total interest bearing liabilities 57,117   102 0.72 54,744   97 0.71
Noninterest bearing deposits 24,382 20,095
Other liabilities   2,302     2,722  
Total liabilities 83,801 77,561
 
Equity
UNBC Stockholder's equity 12,584 11,621
Noncontrolling interests   264     267  
Total equity   12,848     11,888  
Total liabilities and equity $ 96,649   $ 89,449  
 

Net interest income/spread (taxable-equivalent basis)

651 2.76 % 644 2.97 %
Impact of noninterest bearing deposits 0.21 0.19
Impact of other noninterest bearing sources 0.04 0.04
Net interest margin 3.01 3.20
Less: taxable-equivalent adjustment   3   3
Net interest income $ 648 $ 641
     
Refer to Exhibit 11 for footnote explanations.
 
UnionBanCal Corporation and Subsidiaries
Loans and Nonperforming Assets (Unaudited)

Exhibit 7

         
March 31, December 31, September 30, June 30, March 31,
(Dollars in millions) 2013 2012 2012 2012 2012
 
Loans held for investment (period end)
Loans held for investment:
Commercial and industrial $ 21,433 $ 20,827 $ 20,124 $ 19,465 $ 19,429
Commercial mortgage 9,918 9,939 8,293 8,188 8,510
Construction 659 627 678 613 776
Lease financing   1,060   1,104   962   994   1,023
Total commercial portfolio 33,070 32,497 30,057 29,260 29,738
Residential mortgage 23,146 22,705 21,335 20,729 20,081
Home equity and other consumer loans   3,542   3,647   3,494   3,604   3,654
Total consumer portfolio   26,688   26,352   24,829   24,333   23,735
Loans held for investment, before purchased credit-impaired loans 59,758 58,849 54,886 53,593 53,473
FDIC covered loans:          
Purchased credit-impaired loans   1,124   1,185   524   698   849
Total loans held for investment $ 60,882 $ 60,034 $ 55,410 $ 54,291 $ 54,322
 
Nonperforming Assets (period end)
Nonaccrual loans:
Commercial and industrial $ 49 $ 48 $ 36 $ 75 $ 71
Commercial mortgage 57 65 91 101 120
Construction   -   -   -   -   16

Total commercial portfolio

106 113 127 176 207
Residential mortgage 326 306 325 293 301
Home equity and other consumer loans   59   56   52   44   26
Total consumer portfolio   385   362   377   337   327
Nonaccrual loans, before purchased credit-impaired loans 491 475 504 513 534
Purchased credit-impaired loans   29   30   30   40   46
Total nonaccrual loans 520 505 534 553 580
 
OREO 29 45 22 26 24
FDIC covered OREO   58   66   81   79   102
 
Total nonperforming assets $ 607 $ 616 $ 637 $ 658 $ 706
 

Total nonperforming assets, excluding purchased credit-impaired loans and FDIC covered OREO

$ 520 $ 520 $ 526 $ 539 $ 558
 
Loans 90 days or more past due and still accruing (16) $ 3 $ 1 $ 1 $ 1 $ 2
 
Refer to Exhibit 11 for footnote explanations.
 
UnionBanCal Corporation and Subsidiaries
Allowance for Credit Losses (Unaudited)

Exhibit 8

         
As of and for the Three Months Ended
March 31, December 31, September 30, June 30, March 31,
(Dollars in millions) 2013 2012 2012 2012 2012
 
Analysis of Allowance for Credit Losses
Balance, beginning of period $ 653 $ 668 $ 656 $ 704 $ 764
 
(Reversal of) provision for loan losses, excluding FDIC covered loans (3 ) (3 ) 43 (13 ) 1

(Reversal of) provision for FDIC covered loan losses not subject to FDIC indemnification

- (2 ) 2 (1 ) (2 )
Increase (decrease) in allowance covered by FDIC indemnification 2 (4 ) 8 (3 ) (6 )
Other - (1 ) 1 - -
 
Loans charged off:
Commercial and industrial (1 ) (6 ) (12 ) (10 ) (34 )
Commercial mortgage (2 ) (3 ) (1 ) (5 ) (6 )
Construction   -     -     -     (11 )   -  
Total commercial portfolio (3 ) (9 ) (13 ) (26 ) (40 )
Residential mortgage (7 ) (6 ) (22 ) (9 ) (12 )
Home equity and other consumer loans   (6 )   (9 )   (19 )   (7 )   (11 )
Total consumer portfolio (13 ) (15 ) (41 ) (16 ) (23 )
FDIC covered loans   (3 )   (8 )   (3 )   (2 )   -  
Total loans charged off (19 ) (32 ) (57 ) (44 ) (63 )
 
Recoveries of loans previously charged off:
Commercial and industrial 3 6 7 8 4
Commercial mortgage - 10 5 - 3
Construction - 2 1 5 1
Lease financing   -     5     -     -     -  
Total commercial portfolio 3 23 13 13 8
Home equity and other consumer loans   1     1     1     -     1  
Total consumer portfolio   1     1     1     -     1  
FDIC covered loans   1     3     1     -     1  
Total recoveries of loans previously charged off   5     27     15     13     10  
Net loans charged off   (14 )   (5 )   (42 )   (31 )   (53 )
 
Ending balance of allowance for loan losses 638 653 668 656 704
Allowance for losses on off-balance sheet commitments   138     117     126     130     131  
Total allowance for credit losses $ 776   $ 770   $ 794   $ 786   $ 835  
 
Components of allowance for loan losses:

Allowance for loan losses, excluding allowance on purchased credit-impaired loans

$ 637 $ 652 $ 656 $ 652 $ 694
Allowance for loan losses on purchased credit-impaired loans   1     1     12     4     10  
Total allowance for loan losses $ 638   $ 653   $ 668   $ 656   $ 704  
 
UnionBanCal Corporation and Subsidiaries
Securities Available for Sale (Unaudited)

Exhibit 9

 
          Fair Value   Fair Value
March 31, 2013 December 31, 2012 Amount Change from % Change from
Amortized Fair Amortized Fair December 31, December 31,
(Dollars in millions) Cost Value Cost Value 2012 2012
 
U.S. government sponsored agencies $ 468 $ 472 $ 866 $ 885 $ (413 ) (47 ) %
Residential mortgage-backed securities:
U.S. government and government sponsored agencies 13,172 13,281 13,104 13,333 (52 ) (0 )
Privately issued 358 362 445 443 (81 ) (18 )
Commercial mortgage-backed securities 3,500 3,563 2,863 2,971 592 20
Collateralized loan obligations   2,296   2,302   1,996   1,959   343   18
Securities available for sale before other debt and equity securities 19,794 19,980 19,274 19,591 389 2
Other debt securities:

Conduit debt bonds

1,557 1,532 1,482 1,438 94 7
Other 253 258 301 304 (46 ) (15 )
Equity securities   30   31   19   19   12   63
Total securities available for sale $ 21,634 $ 21,801 $ 21,076 $ 21,352 $ 838   4 %
 
UnionBanCal Corporation and Subsidiaries
Reconciliation of Non-GAAP Measures (Unaudited)
         
The following table presents a reconciliation between certain Generally Accepted Accounting Principles (GAAP) amounts and specific non-GAAP measures as used to compute selected non-GAAP financial ratios.

Exhibit 10

 
As of and for the Three Months Ended
March 31, December 31, September 30, June 30, March 31,
(Dollars in millions) 2013 2012 2012 2012 2012
 
Net income attributable to UNBC $ 147 $ 123 $ 124 $ 187 $ 195
Adjustments for merger costs related to acquisitions, net of tax 24 26 3 2 1
Net adjustments for privatization transaction, net of tax   (1 )   2     5     7     6  

Net income attributable to UNBC, excluding impact of privatization transaction and merger costs related to acquisitions

$ 170   $ 151   $ 132   $ 196   $ 202  
 
Average total assets $ 96,649 $ 92,051 $ 87,881 $ 89,479 $ 89,449
Net adjustments related to privatization transaction   2,330     2,345     2,359     2,377     2,394  
Average total assets, excluding impact of privatization transaction $ 94,319   $ 89,706   $ 85,522   $ 87,102   $ 87,055  
Return on average assets (3) 0.61 % 0.54 % 0.56 % 0.84 % 0.88

Return on average assets, excluding impact of privatization transaction and merger costs related to acquisitions (3) (4)

0.72 0.68 0.62 0.90 0.93
 
Average UNBC stockholder's equity $ 12,584 $ 12,559 $ 12,209 $ 11,905 $ 11,621
Adjustments for merger costs related to acquisitions (48 ) (15 ) (5 ) (2 ) -
Net adjustments for privatization transaction   2,353     2,360     2,366     2,371     2,375  

Average UNBC stockholder's equity, excluding impact of privatization transaction and merger costs related to acquisitions

$ 10,279   $ 10,214   $ 9,848   $ 9,536   $ 9,246  
Return on average UNBC stockholder's equity (3) 4.67 % 3.93 % 4.03 % 6.32 % 6.75

Return on average UNBC stockholder's equity, excluding impact of privatization transaction and merger costs related to acquisitions(3) (4)

6.62 5.93 5.38 8.22 8.73
 
Noninterest expense $ 713 $ 715 $ 638 $ 599 $ 614
Less: Foreclosed asset expense and other credit costs (1 ) 6 - 1 1
Less: (Reversal of) provision for losses on off-balance sheet commitments 15 (10 ) (4 ) (1 ) (2 )
Less: Productivity initiative costs 4 19 10 2 6
Less: Low income housing credit (LIHC) investment amortization expense 15 17 15 18 13
Less: Expenses of the LIHC consolidated VIEs 6 6 10 8 7
Less: Merger costs related to acquisitions 40 43 6 3 1
Less: Net adjustments related to privatization transaction 14 17 21 21 22
Less: Debt termination fees from balance sheet repositioning - - 30 - -
Less: Intangible asset amortization   3     -     -     -     -  
Noninterest expense, as adjusted (a) $ 617   $ 617   $ 550   $ 547   $ 566  
 
Total revenue $ 903 $ 889 $ 843 $ 834 $ 855
Add: Net interest income taxable-equivalent adjustment 3 3 3 3 3
Less: Productivity initiative gains - - - - 23
Less: Accretion related to privatization-related fair value adjustments 13 15 12 10 11

Less: Gains from certain securities associated with balance sheet repositioning

(8 ) - 30 - -
Less: Other credit costs   (9 )   -     -     -     -  
Total revenue, as adjusted (b) $ 910   $ 877   $ 804   $ 827   $ 824  
Adjusted efficiency ratio (a)/(b) (6) 67.76 % 70.29 % 68.37 % 66.18 % 68.76
 
Total UNBC stockholder's equity $ 12,594 $ 12,491 $ 12,437 $ 12,076 $ 11,821
Less: Goodwill 2,952 2,942 2,457 2,457 2,456
Less: Intangible assets, except mortgage servicing rights (MSRs) 337 373 298 318 341
Less: Deferred tax liabilities related to goodwill and intangible assets   (122 )   (129 )   (117 )   (115 )   (123 )
Tangible common equity (c) $ 9,427   $ 9,305   $ 9,799   $ 9,416   $ 9,147  
Tier 1 capital, determined in accordance with regulatory requirements $ 10,031 $ 9,864 $ 10,196 $ 10,049 $ 9,853
Less: Junior subordinated debt payable to trusts   66     66     -     -     -  
Tier 1 common equity (d) $ 9,965   $ 9,798   $ 10,196   $ 10,049   $ 9,853  
Total assets $ 96,959 $ 96,992 $ 88,185 $ 87,939 $ 92,323
Less: Goodwill 2,952 2,942 2,457 2,457 2,456
Less: Intangible assets, except MSRs 337 373 298 318 341
Less: Deferred tax liabilities related to goodwill and intangible assets   (122 )   (129 )   (117 )   (115 )   (123 )
Tangible assets (e) $ 93,792   $ 93,806   $ 85,547   $ 85,279   $ 89,649  
Risk-weighted assets, determined in accordance with regulatory requirements (f) (7) $ 79,870   $ 79,321   $ 74,065   $ 72,905   $ 71,752  
Tangible common equity ratio (c)/(e) (10) 10.05 % 9.92 % 11.46 % 11.04 % 10.20
Tier 1 common capital ratio (d)/(f) (8) (9) 12.48 12.35 13.77 13.78 13.73
 
Refer to Exhibit 11 for footnote explanations.
 
UnionBanCal Corporation and Subsidiaries
 
Footnotes

Exhibit 11

     
 
(1) Pre-tax, pre-provision income is total revenue less noninterest expense. Management believes that this is a useful financial measure because it enables investors and others to assess the Company's ability to generate capital to cover loan losses through a credit cycle.
 
(2) Core deposits exclude brokered deposits, foreign time deposits and domestic time deposits greater than $250,000.
 
(3) Annualized.
 
(4) These ratios exclude the impact of the privatization transaction and merger costs related to acquisitions. Management believes that these ratios provide useful supplemental information regarding UnionBanCal's business results. Please refer to Exhibit 10 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(5) The efficiency ratio is total noninterest expense as a percentage of total revenue (net interest income and noninterest income).
 
(6) The adjusted efficiency ratio, a non-GAAP financial measure, is adjusted noninterest expense (noninterest expense excluding privatization-related expenses and fair value amortization/accretion, foreclosed asset expense and other credit costs, (reversal of) provision for losses on off-balance sheet commitments, low income housing credit (LIHC) investment amortization expense, expenses of the LIHC consolidated VIEs, merger costs related to acquisitions, certain costs related to productivity initiatives, debt termination fees from balance sheet repositioning and intangible asset amortization) as a percentage of adjusted total revenue (net interest income (taxable-equivalent basis) and noninterest income), excluding impact of privatization, gains from productivity initiatives related to the sale of certain business units in 2012, gains from certain securities associated with balance sheet repositioning and other credit costs. Management discloses the adjusted efficiency ratio as a measure of the efficiency of our operations, focusing on those costs most relevant to our business activities. Please refer to Exhibit 10 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(7) Yields, interest income and net interest margin are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.
 
(8) Estimated as of March 31, 2013.
 
(9) The Tier 1 common capital ratio is the ratio of Tier 1 capital, less qualifying trust preferred securities, if any, to risk-weighted assets. The Tier 1 common capital ratio, a non-GAAP financial measure, facilitates the understanding of UnionBanCal's capital structure and is used to assess and compare the quality and composition of UnionBanCal's capital structure to other financial institutions. Please refer to Exhibit 10 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(10) The tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible common equity divided by tangible assets. The methodology for determining tangible common equity may differ among companies. The tangible common equity ratio facilitates the understanding of UnionBanCal's capital structure and is used to assess and compare the quality and composition of UnionBanCal's capital structure to other financial institutions. Please refer to Exhibit 10 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(11) Criticized loans held for investment reflect loans in the commercial portfolio segment that are monitored for credit quality based on internal ratings. Amounts exclude small business loans, which are monitored by business credit score and delinquency status.
 
(12) The allowance for credit losses ratios include the allowances for loan losses and losses on off-balance sheet commitments.
 
(13) These ratios exclude the impact of all purchased credit-impaired loans and FDIC covered OREO. Purchased credit-impaired loans and OREO related to the April 2010 acquisitions of certain assets and assumption of certain liabilities of Frontier Bank and Tamalpais Bank are covered under loss share agreements between Union Bank, N.A. and the Federal Deposit Insurance Corporation. Management believes the exclusion of purchased credit-impaired loans and FDIC covered OREO from certain asset quality ratios that include nonperforming loans, nonperforming assets, net loans charged off, total loans held for investment and the allowance for loan losses or credit losses in the numerator or denominator provides a better perspective into underlying asset quality trends.
 
(14) Average balances on loans outstanding include all nonperforming loans. The amortized portion of net loan origination fees (costs) is included in interest income on loans, representing an adjustment to the yield.
 
(15) Includes interest bearing trading liabilities.
 
(16) Excludes loans totaling $125 million, $124 million, $88 million, $124 million, and $144 million that are 90 days or more past due and still accruing at March 31, 2013, December 31, 2012, September 30, 2012, June 30, 2012, and March 31, 2012, respectively, which consist of loans accounted for in accordance with the accounting standards for purchased credit-impaired loans. The past due status of individual loans within the pools is not a meaningful indicator of credit quality, as potential credit losses are measured at the loan pool level.
 
nm = not meaningful
 

CONTACT:
UnionBanCal Corporation
Thomas Taggart, 415-765-2249
Corporate Communications
Michelle Crandall, 415-765-2780
Investor Relations

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